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Protecting your farm business in the event of divorce - what you need to know

Divorce is always an upsetting and stressful event, whatever the circumstances, but, for farmers, the ramifications extend far beyond the routine sharing of assets to agree a fair settlement.

 

Elspeth Kinder, Partner and Joint Head of Family Law, JMW Solicitors explains...

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Protecting your farm business in the event of divorce - what you need to know

With marital assets tied up in the business, divorce may have ramifications not only for both spouses, but for other family members as well as future generations.

 

Due to the nature of the business, liquidity is usually an issue and, as-a-result, divorce has the potential to render a farming business unviable. In some cases, where a solution cannot be reached, the end-result is the sale of the farm.

 

Often farming businesses are the culmination of many generations’ toil and commitment - life and business are intertwined and a great deal of emotional capital, as well as financial, is at stake.

 

The passing of the farm and its assets onto future generations is suddenly under question, causing emotions to run high and giving rise to a situation that puts a great deal of pressure on the whole family.

 

A divorce that involves a farming business will always require smart solutions and creative thinking, but with the appropriate groundwork and advice, the farm can be protected.


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Plan-ahead in happier times

 

While no-one anticipates divorce - for many, it’s an unpleasant scenario to comprehend prior to marrying their partner - the key is in planning ahead. Protecting the family farm for future generations will be much more likely with a pre-nuptial agreement in place.

 

While a pre-nup isn’t a catch all and won’t necessarily make reaching a settlement clear-cut, it’ll go a long way towards evidencing a mutual understanding around each other’s financial position and should illustrate a joint intention to preserve certain assets, as well as any money or property acquired before marriage.

 

Inherited money and assets aren’t off the table

 

When it comes to farming businesses, assets may have been owned by the farmer well in advance of marriage, often inherited.

 

It is sometimes wrongly assumed that such assets will be ‘off the table’ so to speak, which isn’t the case - when seeking to divide assets, everything will be taken-into-account regardless of where they came from.

 

Consider the way the business is structured

 

Farmers should take advice on the way the business is structured to guard against future events, including divorce.

A farm may have been held for generations and in diverse forms of ownership, for example with assets and business held through a limited company with several shareholders (frequently family members) or alternatively through a trust or a family partnership.

 

A corporate lawyer will ensure that the business is structured in the most effective, efficient way.

 

Protecting your interests

 

When divorce does occur, it’s important to act straight away to avoid the other party stealing a march. Protect your information, such as emails and other records, changing passwords wherever necessary.

 

Seek a family law expert with a strong knowledge of handling divorce proceedings where a farming business is involved - their specialist expertise and knowledge will be invaluable.

 

Reaching a positive outcome

 

There is every chance that with appropriate forward-planning, and with the right expertise, the farm will be preserved for future generations.

 

Any judge will be keen to reach a settlement by which both spouses and any dependents are provided for without the need for the sale of assets. The sale of the farm will be done as a last-ditch solution; every effort will be made to avoid a farm being split up and sold.

 

If a farm business is generating income, a settlement that makes the farm business unviable isn’t in the interests of either party, particularly given the fact that the business will most likely fund future maintenance payments.

Keep an open mind

 

While the retention of the farm will always be the preferred outcome, both spouses and their dependents do need to be provided for, so a creative approach is essential. A thorough appraisal of all assets, both liquid and illiquid, will help in identifying any property, land or non-core assets that can be offloaded to raise funds without risking the viability of the business.

 

Draw upon as much expertise as possible

 

It’s essential to call upon as much specialist expertise as possible - while your family lawyer will be a primary point of contact, calling upon your accountant, a wealth manager and a corporate lawyer in regards to the structuring of the business will pay dividends.

 

Farmers should remember that the groundwork for successfully preserving their business in the event of divorce is done in happier times.

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